FOR IMMEDIATE RELEASE 2002-35
SEC FILES FRAUD CASE AGAINST FORMER PRESIDENT OF IGI INC.
COMPLAINT SEEKS PERMANENT BAR AS OFFICER AND DIRECTOR,
RETURN OF GAINS FROM STOCK OPTIONS, BONUSES
BASED ON FALSE FINANCIAL RESULTS
Washington, DC, March 13, 2002 Ė The Securities and
Exchange Commission filed suit today against John P. Gallo,
the former president and chief operating officer of IGI
Inc., for violations of the antifraud, periodic reporting,
record keeping, internal controls and lying to auditors
provisions of the federal securities laws.
In addition to permanent injunctive relief and civil
money penalties, the Commission is seeking a court order
that Gallo be permanently barred from acting as an officer
or director of any public company and that he disgorge any
compensation or trading profits based on misrepresentations
of IGIís financial results.
The complaint, filed in U.S. District Court in Camden,
N.J., alleges that beginning with fiscal year 1995, and
continuing through the third quarter of fiscal year 1997,
Gallo engaged in a systematic, fraudulent scheme to inflate
IGIís assets, revenues and net income and to manage the
companyís reported earnings. IGI, based in Buena, N.J.,
manufactures poultry vaccines and other animal health
products, pet products, and cosmetics and skin care
products, among other things.
The complaint seeks an order that Gallo prepare an
accounting of (a) all compensation and other remuneration he
received as a result of IGI fraudulently misrepresenting
that it had attained or exceeded any revenue, net income or
other performance targets for fiscal years 1995, 1996 and
1997, including all bonuses or stock options he received,
and (b) profits from all sales by him of IGI securities
between Jan. 1, 1995, and Nov. 17, 1997, and from the sale
of IGI securities resulting from his exercise of stock
options after Nov. 17, 1997. Finally, the Commissionís
complaint seeks an order that Gallo disgorge all such
compensation, remuneration and trading profits, with
prejudgment interest, and surrender to IGI all unexercised
stock options.
The complaint alleges that from fiscal year 1995
through the third quarter of fiscal year 1997, Gallo
directed various former officers of the company not to
record properly the costs associated with reductions in
IGIís inventory for large quantities of poultry vaccine that
either were destroyed or were defective and could not be
sold. The complaint alleges that in connection with these
fraudulent inventory practices, Gallo directed IGIís former
chief financial officer to improperly account for destroyed
or defective poultry vaccines as inventory reserves, instead
of writing them off as the losses were realized in
conformity with Generally Accepted Accounting Principles.
The complaint alleges that Gallo decided how much defective
poultry vaccine would be destroyed and directed the former
chief financial officer to adjust inventory reserve balances
to achieve his desired financial results.
The complaint alleges that Gallo directed the former
vice president of operations and the former manager of
international sales to record revenue from the sale of IGI
products prior to shipment in order to fraudulently increase
IGIís revenues and to manipulate its earnings. The
complaint alleges that Gallo directed these individuals and
the former chief financial officer to hold IGIís books open
after the quarter had ended and then directed the former
vice president of operations and the former manager of
international sales to backdate sales invoices and shipping
documents.
According to the complaint, Gallo also directed the
former vice president of operations and the former manager
for international sales to delay approval of large sales
credits until revenue levels were high enough to allow write-
offs of the credits without affecting the companyís ability
to announce realization of its quarterly earnings targets.
Finally, the complaint alleges that in connection with the
annual audits of IGIís financial statements for fiscal years
1995 and 1996, Gallo signed IGIís management representation
letters, later given to IGIís independent auditors, that he
knew, should have know, or was reckless in not knowing were
materially false and misleading.
The complaint alleges that as a result of Galloís
fraudulent conduct, IGI materially overstated its assets,
revenues and net income for fiscal years 1995 and 1996, the
interim quarters thereof, and for the first three quarters
of fiscal year 1997, and IGI filed materially false and
misleading reports and financial statements with the
Commission for fiscal years 1995 and 1996, and for the first
three quarters of fiscal year 1997.
The complaint alleges that Gallo violated and/or aided
and abetted violations of Sections 10(b), 13(a),
13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities
Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20,
13a-1, 13a-13, 13b2-1 and 13b2-2. [SEC v. John P. Gallo,
Civil Action No. 02-1087 (SMO)(D.N.J.)] (LR-17410) (March
13, 2002)
In related actions, the Commission filed a settled
antifraud injunctive action against Lawrence N. Zitto, IGIís
former vice president of operations (Civil Action No. 02-
1088); and a settled civil penalty proceeding against Donald
J. MacPhee, IGIís former chief financial officer (Civil
Action No. 02-1089). The Commission also instituted and
simultaneously settled administrative cease-and-desist
proceedings against IGI, MacPhee, William Dickson, IGIís
former production manager for poultry vaccines, and Stephen
Collins, IGIís former manager of international sales. (LR-
17410) (March 13, 2002)
Contact Persons: Linda Chatman Thomsen, Deputy Director
(202) 942-4501
Christopher R. Conte, Assistant Director
(202) 942-4579
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